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Legal Alert: New York State Department of Labor Publishes Proposed Regulations Governing Wage Deductions

Date   Jun 5, 2013

The New York State Department of Labor (NYSDOL) has published long-awaited proposed regulations governing wage deductions.

 

Executive Summary:    The New York State Department of Labor (NYSDOL) has published long-awaited proposed regulations governing wage deductions.  These regulations provide guidance on the November 6, 2012 amendment (the "Amendment") to the New York Labor Law (NYLL) providing employers greater ability to make deductions from employee wages.  The regulations are not yet final and the New York Department of State is accepting public comments until July 6, 2013. 

Background:

Prior to the Amendment, the NYSDOL took the position that deductions other than those authorized by law (e.g. tax withholdings) or expressly authorized by NYLL § 193 were legally barred, even if the deductions were for mathematical or clerical errors resulting in overpayment.  (See our Legal Alert about the Amendment.)

The Amendment lists four general, and expanded, categories for permissible wage deductions.  The proposed regulations give guidance on what these categories include and how to make legal wage deductions for them.

The four categories for permissible wage deductions under Section 193 are, in short:

  1. deductions made in accordance with law; 
  2. deductions "similar to" those specified by section 193, authorized by and for the benefit of the employee;
  3. deductions to recover overpayments; and 
  4. deductions to recover wage advances. 

 Deductions for the Benefit of the Employee:

The proposed regulations clarify what constitutes an "authorized" wage deduction that is "similar to" the deductions listed in Section 193 "for the benefit of the employee." Deductions are for the "benefit" of the employee if they provide financial or other "support" to the employee, the employee's family, or an employee-designated charitable organization. This "support" must take the form of health and welfare benefits; pensions and retirement benefits; child care and educational benefits; charitable benefits; dues and assessments; transportation; or food and lodging. The regulations provide several examples of deductions that might fit into these categories: gym dues, pharmacy purchases at the employer's place of business, after-school care expenses, parking or transit passes, and cafeteria and vending machine purchases.

To satisfy the authorization requirement, employers must obtain employee authorization prior to making the deduction, and that authorization must be voluntary, in writing, and contain all terms and conditions of the deduction, including the benefit to the employee and the manner in which the deduction will be made.

The regulations specifically provide that "convenience" is not a sufficient "benefit" to the employee. They also expressly prohibit certain deductions, including deductions for purchases of tools, equipment or uniforms, repayment for employer losses such as spoilage or breakage, and fines for tardiness, misconduct, or resignation without notice.

Deductions to Recover Overpayment:

The proposed regulations also establish, among other things, notice and "size-of-deduction" limits to wage deductions that are now permissible for wage overpayments.

Where the size of the overpayment is equal to or less than the next net wage payment, the employer may deduct the entire overpayment from that next wage payment if the employer provides at least three days' notice to the employee.

Otherwise, deductions for overpayments from any wage payment may not exceed 12.5% of gross wages, nor cause the employee to be paid less than the statutory minimum wage.  In these circumstances, employers must provide 3 weeks' notice of the proposed deduction.  In all cases, employers must provide employees notice of their intent to recoup overpayments within eight weeks of the date of the overpayment.  In the event that the employer does not provide timely notice, its recourse appears to be a civil action to recover the overpayment.

Employers are also required to implement procedures for the dispute of overpayments; procedures which employees must be informed of in an employer's notice of intent to recoup overpayment, and which may require the employer to delay its deductions. An employer's failure to afford this dispute process to employees will create a presumption that the contested deduction was impermissible.

Deductions for Repayment of Wage Advance:

Lastly, the proposed regulations state the conditions under which an employer is permitted to make deductions from an employee's wages for the repayment of wage or salary advances.  The proposed regulations require the employer and employee to agree, in writing, before the advance is given, to the material terms (the timing and duration) of the repayment deductions.  Deductions for repayment must happen no less frequently than every wage period, and repayment by separate transaction is permissible so long as it adheres to the terms of the written agreement between employer and employee or the terms of a collective bargaining agreement. 

As with deductions made for overpayments, employers must provide specific processes for employees to contest wage deductions not made in accordance with the written agreement.  An employee's use of this process requires the employer to cease its deductions until it responds to the employee's objection, and, once again, an employer's failure to provide this process will create the a presumption that the contested deductions were impermissible.

Employers' Bottom Line:

The proposed regulations, while providing some clarity regarding permissible wage deductions, are not final and employers should proceed cautiously, with advice of counsel as necessary, in implementing any program of wage deductions until they become final.

If you have any questions regarding this Alert, please contact the author, Stephen Zweig, szweig@fordharrison.com, Managing Partner of FordHarrison's New York City office.